J Patrick + Associates Blog

Pros and Cons of Non-Competes: What You Need to Know

Posted by Nicholas Stearns on Thu, Sep 08, 2016 @ 02:29 PM

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Having your employees sign a Non-Compete clause has its advantages and disadvantages. Here are some Pro’s and Cons to help you decide whether it benefits your company to keep one in place, or places unnecessary restrictions on you and your employees.

 

PRO’S

Employee Retention

While the original intention of a Non-Compete is to protect the competitive advantages of your company, it also has the side-effect of enhancing employee retention. Your employees very well might be less susceptible to recruitment offers, as a new position would require them to move or change their role. On the other side of the coin, your competition is less likely to try hiring away your employees if they know there are restrictions on their availability.

Employee Retention = Customer Retention

Higher employee retention naturally feeds your customer retention rate. When you have greater continuity of personnel, your company is able to provide better service, leading to greater satisfaction. Relationships are deepened when there is less turnover. Happy customers mean a healthier bottom line.

Singular Offerings

A secure company is a valuable company.  Non-Competes increase the value of your company because they ensure that your intellectual property is secured. Customers and candidates alike value companies that keep proprietary practices in-house and the practice sends a powerful message of security and integrity to potential investors and companies who might be looking to acquire you.

 

CON’S

Makes Recruitment More Difficult

Non-Competes are perceived as a barrier to many candidates. Knowing that leaving your company means either moving, changing industries or just being unemployed for an amount of time gives potential hires pause. In the current hiring environment, you have to give yourself every available advantage to attract top talent. Non-competes cut that advantage in half.

Make Your Competition Look Good

If your competition isn’t using Non-Competes they may become much more attractive to top performers. When given a choice between your company, and one where they aren’t tied down, most high performers would choose to the freedom the position that offers more flexibility.

It’s a State to State Proposition

The enforcement of these contracts varies wildly across state lines. In 2016 the White House put out a report on Non-Competes showing that some states, such as California, have a history of not enforcing the clauses, while others, such as Florida, tend to side with employers in litigation. Massachusetts recently attempted to pass new legislation to restrict or eliminate Non-Compete Agreements. Depending on where you’re doing business, your ability to even enforce your agreements could be in jeopardy.

A Third Way Forward

If the risks of requiring a Non-Compete are too steep, there is another way. Non-Disclosure agreements provide a level of security to your information and proprietary products without being so restrictive. You get the level of security you need, and your employees get enough freedom to move to another position if and when they need to.

It may be the closest thing to a win-win you can get.

 

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